Something that may interest some....It's time to dig into something a bit whack. Service Stream (SSM) was a stock once plagued by bots and algorithms – Until it smashed earnings expectations on 22 February and went on an 11-day win streak.
The stock traded sideways from July 2023 till February 2024, in a relatively tight price range between the mid 80 cent level and mid 90 cent level.
I guess the first question is – How do you know there’s an algorithm? Here are some of my key observations:
- Consistent volume – Between December 2023 and February 2024 the stock traded within a narrow range and averaged around 500-600,000 volume every single day
- The order book – But if you go into the order book, there’s only offers and bids of 20-30,000 shares
- Put the above together – So 500,000 volume but bids and offers of only 20-30,000. That implies you need such bids and offers to be wiped out 15-30 times over
- What happens on repeat – If a buyer(s) take out the 94 cent order of 20,000 shares (which pushes the share price up from 93.5-94 to 94-94.5) the 94 line gets refreshed by the algorithm
- In essence – The company might be fundamentally sound and undervalued but there’s a persistent seller at several price points with a boatload of shares
Naturally, the next question is – Why is there an algorithm and who is it?
Picture this, you’re a fund that holds 115 million SSM shares (~20% of the company) and you want to offload this stake. If you tried to sell everything in one go – You’d nuke the share price.
You're not in a hurry to sell and you can’t find another party that’s interested in buying your stake (or a portion of it). So here you are – Drip feeding the market with a few hundred thousand shares a day.
By the way, the above numbers are real – Allan Gray Australia owned 114.8 million shares as of 27 October 2023 and reduced its position to 107.7 million shares by 29 February 2024.
I guess the last thing is – Can I profit from this?
Before I say ‘yes’ – I should probably say that past performance is no guarantee of future returns. Trading the SSM range would have worked for many months – Buying around 85-87 cents and selling at 90-92 cents. The main limitations would be:
- Managing risk – Between July 2023 and February 2024, the stock slipped below the 85 cent level on ~12 occasions. Where would you position your stop loss?
- Liquidity – There was a prolonged period where daily average volume was only ~500,000 shares. You can’t size up too hard.
- Edge – Imagine if this was common knowledge and everybody was trading SSM. It would probably break something
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Last
$1.68 |
Change
0.020(1.20%) |
Mkt cap ! $286.2M |
Open | High | Low | Value | Volume |
$1.68 | $1.68 | $1.61 | $177.8K | 108.9K |
Buyers (Bids)
No. | Vol. | Price($) |
---|---|---|
1 | 1100 | $1.64 |
Sellers (Offers)
Price($) | Vol. | No. |
---|---|---|
$1.68 | 4999 | 1 |
View Market Depth
No. | Vol. | Price($) |
---|---|---|
1 | 31221 | 1.625 |
1 | 5000 | 1.620 |
1 | 30000 | 1.615 |
2 | 16249 | 1.610 |
4 | 26875 | 1.600 |
Price($) | Vol. | No. |
---|---|---|
1.680 | 4999 | 1 |
1.720 | 17729 | 2 |
1.730 | 25792 | 1 |
1.750 | 508 | 1 |
1.780 | 4483 | 1 |
Last trade - 16.10pm 06/09/2024 (20 minute delay) ? |
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